Courtesy of The Maxfield Report
www.themaxfieldreport.com

Last week in the big packer trade, producers started the week with offer lists that, for the most part, appeared unaltered compared to the previous couple of weeks. In addition, sources shared that the majority of packers continued to claim strong sold forward positions. They made it known to the trade that they had no interest in chasing the lower price ideas of buyers, despite the opinion among buyers that packers’ offer lists were a bit more populated last week.

As to interest last week, things appeared to get off to a slow start. The majority of people we spoke with reported a limited number of bids in the first half of the week, with the few buyers willing to share their price ideas targeting lower levels. The second half of the week saw interest improve, with a noticeable increase in the number of buyers willing to share their price ideas. This did not translate into an improvement in the price ideas of buyers, however.

As we approached the end of the week we started to see some compromise between buyers and sellers. As a result, we are of the opinion that that were a decent number of hides changing hands by the end of the week. We have our doubts over whether producers liquidated the entire slaughter last week (637,000 animals), continuing the trend of the past three to four months.

The sentiment of the trade is that packers were committed to holding prices steady during the first half of the week. By the time we reached the middle of the week it appeared that at least a few packers and several traders were more willing to negotiate prices. This resulted in trading levels $0.50-$1 lower than the previous week, depending on the selection and the packer. It appears that HTS were coming under the most pressure, with HNS and BBS closer to steady levels.

The biggest challenge facing packers is two-fold:
1. Trying to persuade buyers to take delivery of their older, more expensive contracts and/or acquiring more timely line of credit openings from customers;
2. Because of problem one, many packers are being forced to quietly make “special” offers to their preferred customers, news of which eventually finds its way back to the trade.

Reports this weekend from Asia say environmental inspection teams were in the Wuji district of China last week (September 19). According to reliable reports, strict inspections were carried out on the rotary drum areas and the leather finishing factories in the area. So far, several tanneries have been temporarily closed as there is a need for improvement in certain areas of their factories.

According to sources, the duration of these shutdowns is unknown, but they report that the tanneries involved will need to be reviewed again before being allowed to resume their operations. If the tanneries are still not up to standard, they might be expected to close until they can meet the environmental inspection standard. The China Leather Industry Association reported that the situation is quite grim.

Most members of the cowhide trade say last week was uneventful in terms of interest and activity. Sources report that it started with the majority of producers publishing offer lists in line with the previous two to three weeks. Popular opinion of the trade is that several producers had enjoyed a decent couple of weeks of interest leading up to last week. Some members of the trade were of the opinion that a few producers had offer lists that were a bit more populated than in the last few weeks. These suspicions were confirmed when these producers were more willing to listen to the price ideas of buyers during the second half of the week.

With regards to sales last week, the consensus of the trade is that there were not as many hides changing hides as in the previous two to three weeks. Most members of the trade were calling prices a soft steady to $0.50-$1 lower, depending on the producer and the selection sold.

We have started a new week of trading, which happens to be the last of the month and the last of the third quarter. Looking ahead, the Harvest Moon Festival holidays start at the end of the week, lasting through most of next week. This is giving us guarded optimism that a few more tanners will be encouraged to enter the market, especially considering that trading levels are at their lowest since the summer of 2009.

Elsewhere, slaughter levels are showing no signs of dropping. Last Friday’s Cattle on Feed (COF) report indicated a majority of cattle on feed are heavier than a year ago. Coupled with the seasonal temperatures starting to envelop much of the central plains this week and the long-term forecast of cooler temperatures and cheap corn, we expect cattle to have optimal weight gains and the onset of heavier hides in the short-term.

In addition, last week’s COF report continued to have placements higher than a year ago (and well above the pre-release guesses of most analysts). In our opinion, this confirms that we are likely to continue to see harvest levels 5-7% higher than a year ago.

We are hearing a number of reports that some US automakers have plans to lay off entire production shifts. This is a direct result of lower-than-expected sales of new vehicles. Logically, lower-than-expected car sales is likely to result in a reduction in demand from some automotive tanners. The hide trade is already trying to digest the drop in demand from shoe upper tanners and is unlikely to welcome this news.

Taking a quick look around the globe, we continue to hear of more than ample offers of wet salted hides from Europe, while producers in Australia also appear to have hides for sale despite slaughter numbers that continue to run below the level of a year ago. In addition, we continue to hear that there are a substantial number of wet blue hides for sale in Brazil. If we were a seller, we would continue to sell into this market until we see a sizeable, sustained improvement in demand.